Fleet News

Sale and leaseback methods could help public sector save

Local and central government organisations should be able to collectively raise millions of pounds and drive through significant efficiency savings if they undertake a sale and leaseback on their fleet vehicles and adopt best practice from the private sector to offset far-reaching funding cuts.

That’s the view of Vincent St Claire, managing director of Alliance Asset Management, following the Government’s announcement of cuts in central funding for councils that could total up to 28% over the next four years. The average decrease for 2011/12 will be 4.4%, with no council losing more than 8.9% for any of the next three years.

The cuts, which are the worst to be faced by councils since the end of the Second World War, will come into effect from April 6, 2011.

Typically, the public sector uses a blend of acquisition methods including outright purchase for their fleets, which range from cars and light commercial vehicles to refuse trucks, snow ploughs and grass cutters.

Additionally, the public sector collectively spends millions of pounds on reimbursing employees’ business mileage - often at rates significantly higher than tax-free HM Revenue & Customs’ rate of 40p a mile for the first 10,000 business miles and 25p a mile thereafter.

St Claire said: “The rule book by which the public sector has run its fleet and transport operations in the past must be ripped up.

“With some government organisations and councils owning hundreds of vehicles the quickest and simplest way to replenish financial coffers is to dispose of assets. The sale and leaseback of vehicles has been popular in the private sector for many years and there is no reason why the cash-raising solution should not take-off across the public sector.

“Not only will these organisations receive a much-needed injection of funds, but they will benefit from being able to exactly budget for their vehicle leasing costs on a monthly basis which will help cash flow.”

He added: “Not all local councils employ full-time professional fleet managers. In these cases vehicle decision-making is made by the HR, procurement and finance departments.

“Those people are clearly not fleet experts so by undertaking a sale and leaseback councils will not only be benefiting from a cash injection but they will be able to tap into the vast knowledge bank that their chosen leasing provider has.

“By working in tandem with a leasing company, local councils will be able to benefit from information, advice and experience that will drive forward operating efficiencies resulting in additional financial savings.”

With regards to staff mileage rates, Mr St Claire said: “Some organisations are paying far too much in mileage payment rates, thus giving staff an extra incentive to drive more business miles. Mileage rates of 20p, 30p or even 40p a mile above the tax-free Authorised Mileage Allowance Payment (AMAP) rate of 40p a mile are not unheard of.

“Even taking into account the fact that petrol prices are at an all-time high and diesel pump prices just below record levels such figures are still unrealistic even when taking into account all other vehicle-related costs such as maintenance.

“There is no doubt that with 2011 being the year of austerity, the public sector must, in many cases, reassess mileage reimbursement rates which remain far too generous. Not only do they not deliver value for money to the employer and local taxpayers but they are not in line with the nation’s carbon-cutting agenda.”

In the wake of the autumn Government Spending Review, Alliance Asset Management offered to undertake a level of free consultancy on behalf of individual public sector organisations to assist them in identifying ways in which they can develop cost-effective, value for money policies and procedures.

The service was launched as an extension of Cambridgeshire-based Alliance Asset Management’s ‘health check’ service introduced earlier this year and specifically targeted at fleets running from 500 to 10,000 vehicles.

St Claire said: “A complete change in culture and behaviour is required across the board in relation to public sector fleet operations and travel. Collectively billions of pounds of taxpayers’ money is spent on fleet vehicles and staff travel across the segment but, it seems, often with little accountability or real-world knowledge of costs.

“Since extending the ‘health check’ to the public sector we have been involved in a number of meetings with local and central government bodies and there is no doubt that vast savings can be made in terms of vehicle purchasing, fleet operation and the use of staff vehicles.”

It seems that Government ministers are also encouraging local council to be more pro-active in operating services. Communities Secretary Eric Pickles, who announced the funding settlement, told the BBC that councils could still provide a ‘decent service’ and save money through changes in the way they bought goods and services.

He added: “I believe it is possible to cut significant sums out of local authorities by simply improving the way local authorities operate.”

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